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Defining Competition in Subcontracting

Updated: Dec 31, 2018

A huge part of implementing USAID prime contracts is purchasing goods and services to achieve scope of work objectives or to keep field offices operating fluidly. Per FAR 52.244-5 “Competition in Subcontracting”, primes are required to “select subcontractors…on a competitive basis to the maximum practical extent”.

Interestingly, the FAR does not define “competitive basis” or “competition”. As such, contractors are left to define these terms within their own policies and develop procedures that ensure compliance with their policy. So, how does a contractor define competition to be compliant with FAR 52.244-5?

Some contractors mistakenly think they are required to meet “full and open competition” requirements per FAR Part 6 or justify its absence using the circumstances in FAR 6.302. This is a big mistake as FAR Part 6 only applies to certain government acquisitions, and is not a prime contractor requirement. If you read your USAID contract, you will not find a single FAR or AIDAR clause requiring you to meet full and open competition requirements. Think of the amount of time and money your company would spend trying to meet these requirements!

Most contractors have defined “competition” or “competitive basis” by way of the FAR’s definition of “adequate price competition” (FAR 15.403-1(c)(1)). This is a sound basis for determining when competition requirements are met for subcontracts and procurements that will require Contracting Officer (CO) consent, per FAR 52.244-2[1]; after all, obtaining “adequate price competition” or justifying its absence is a consideration the CO must take into account when determining whether to grant consent to a subcontract (FAR 44.202-2(a)(5)).

However, when you consider the FAR’s references to “adequate price competition”, this is the only instance where it is indirectly implied that a contractor must adhere to its formal definition, since there is no clause included in a prime’s contract that references “adequate price competition”. (Remember, the aforementioned FAR 52.244-5 “Competition in Subcontracting” only references “competition” and “competitive basis” and even FAR 52.244-2 “Subcontracts” makes no mention of competition). And since the reference in the CO’s considerations is only applicable when consent is required, it begs the question of whether a contractor must use “adequate price competition” as a measure of compliance with FAR 52.244-5 when purchasing goods and services that are not subject to consent.

Most contractors choose to use “adequate price competition” for all goods and services above a certain threshold ($1,000 is a common favorite), regardless of whether consent is required. However, choosing such a low threshold can actually put the company at risk, since meeting the definition of “adequate price competition” can be a laborious process and, in the hands of an inexperienced employee, can lead to non-compliant results. As an example, I have seen Requests for Quotations drafted that explicitly state that “no cost information is required”! If no cost information is required, then you are not requesting a quotation nor are you meeting the definition of “adequate price competition”; you are merely conducting a market survey of technical capabilities. So if your company requires “adequate price competition” be conducted for any purchase over $1,000 then you are increasing the opportunity for non-compliance with your policy to occur, and are increasing your odds of being flagged in an audit.

So what is a reasonable threshold for determining when “adequate price competition” should be required?

Looking at the government’s example may be the best way to make that determination. The government does not require competitive quotations for purchases under the micro-purchase threshold (MPT)[2] since “The administrative cost of verifying the reasonableness of the price for purchases may more than offset potential savings from detecting instances of overpricing” (FAR 13.203(a)(3)). Indeed, this justification makes the effort required to conduct a formal solicitation seem impractical. And if we return to the original requirement for competition in FAR 52.244-5 – that contractors compete to the maximum practical extent – then contractors should be encouraged to adopt the government’s MPT as a threshold for requiring competition. Along with reducing your audit risk for non-compliance with corporate policy, adopting the MPT also reflects an effort to be cost-effective and makes better use of your staff’s time, thus facilitating more efficient implementation while making sound use of taxpayer dollars.

[1] CO consent is required for any cost-reimbursement of time-and-materials subcontracts, no matter the value, and for fixed-price subcontracts that exceed the simplified acquisition threshold (currently $250,000 for USAID) or 5% of the prime contract’s total estimated cost.

[2] In 2018, the USAID community saw a nearly 288% increase in the MPT from $3,500 to $10,000.



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